Federal Labor Chief Tweaks Pension Fund Guidelines

By ULRIK NARCISSE

U.S. Labor Secretary Thomas E. Perez on Thursday rescinded the restrictive language of a 2008 Department Of Labor bulletin that discouraged government-backed pension funds from using strategies that considered non-financial benefits when choosing where to invest for individual retirement plans.

“We’re going back to guidance that works,” said Perez at a press conference in the ornate Alexander Hamilton U.S. Custom House on Bowling Green.

Such so-called fiduciary funds have been held to the guidelines of The Employee Retirement Income Security Act of 1974 (ERISA,) a law that has aimed to protect individual retirement investments. The guidelines for how investment firms invested retirement money was outlined in a 1994 bulletin, but was revised in 2008.

According to Perez, that’s when environmental, social, and governance investing got “the cooties” by encouraging more restrictive evaluation criteria that told fiduciary funds to gauge most investments almost exclusively by rate of return, and not by other non-financial benefits, including sustainability and overall social impact, causing a “chilling effect” over the investments.

But officials at the press conference recognized the measurable shift in investment habits outside of ERISA’s guidance.

According to CEO of The Forum for Sustainable and Responsible Development Lisa Woll, ESG related assets surpassed $6.5 trillion in December 2014, an increase of 76 percent from 2012.

“What we have witnessed is an exploding interest in assessing the environmental, social and governance issues as part of the investment process,” said Woll.

The last bulletin said that while evaluative criteria outside of financial gain could be considered in investment decisions, it should only be done under rare and specific ERISA guidelines.

Perez maintained that the return to the language of 1994 was not an example of putting the “thumb on the other side of the scale.” Perez said that the primary concern of retirement plan investments would continue to be to maintain the individual’s financial gain, and that fiduciary plans still would not take greater risks in order to secure additional benefits. However, fiduciary plans would no longer be advised against evaluating ESG factors, and that they may be used as tiebreakers when comparing two investments with similar financial risk or economic characteristics.

“When you take good care of your customers — when you put your customers first — it’s great for you customers, and it’s great for business,” said Perez. “We all believe investing in the best interest of a retirement plan and in the growth of a community can go hand-in-hand.”